No Bar On Arbitrator To Allow Withdrawal Of Claims Provided Legitimate Interests Of Other Party Are Not Prejudiced: Bombay High Court

The Bombay High Court bench of Justices Revati Mohite Dere and Dr. Neela Gokhale has held that the arbitrator can allow the parties to withdraw their claims to initiate fresh arbitration proceedings by issuing a new notice of arbitration, provided that the legitimate interests of the other party are not prejudiced. Brief Facts: An agreement was executed between the Petitioner, in the lead Petition i.e. Ketan Shah and Anugrah Stock & Broking Private Limited ('Anugrah') as a Depository Participant under the bye laws of the Petitioner. The bye laws of Central Depositories Services (India) Limited (CDSL/Petitioner) provides for reference to arbitration. In September 2009, Ketan Shah opened a trading and demat account with Anugrah (Stock Broker). Funds and securities were transferred to the broker from time to time towards margin obligations and for trades in the future options and segments. Disputes arose between the parties, prompting Ketan Shah to issue a notice dated 15th September 2023, calling upon the Petitioner to indemnify him for the losses allegedly caused due to the negligence of the Petitioner and Anugrah, along with interest and related expenses. By this notice, Ketan Shah invoked arbitration proceedings under the arbitration clause of the agreement, to be conducted in accordance with the CDSL Bye-laws. Ketan Shah by a letter dated 21st March 2024 addressed to the Arbitral Tribunal withdrew his claim and sought liberty to file a fresh claim. On 29th March 2024, CDSL addressed a letter recording its detailed objections to the liberty sought by Ketan Shah to file a fresh claim. The Arbitral Tribunal, by its order dated April 2024, dismissed the proceedings as withdrawn while granting the Respondent(s)-Claimant(s) liberty to file a fresh claim with a fresh notice of arbitration. The Petitioner was permitted to re-agitate issues of limitation, jurisdiction, and res judicata. Against the above order, the present writ petitions have been filed under Articles 226/227 of the Indian Constitution. Contentions: The Petitioner submitted that since the arbitral proceedings were terminated, no remedy was available to the Petitioner under the Act, making the petition maintainable under Article 226 of the Constitution of India. It was further argued that tribunals are not equivalent to courts of law and do not possess plenary powers. Procedural provisions cannot override substantive law. An arbitral tribunal, not being a court, lacks general jurisdiction and does not exist in perpetuity. Section 19 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) does not empower the tribunal to override Section 32(2)(a) read with Section 32(3), which are substantive provisions. It was further submitted that the Arbitral Tribunal could have only passed an order permitting withdrawal of the claim and thereafter, the Arbitrator is rendered functus officio, thus, has no jurisdiction to grant liberty to file fresh proceedings. It was further contended that the petitions are not maintainable, as interference by the High Court under Articles 226/227 of the Constitution is permitted only in exceptionally rare cases. An order terminating arbitral proceedings under Section 32 of the Arbitration Act can be challenged before a competent court under Section 14 of the Arbitration Act. Observations: The court noted that the Delhi High Court in IDFC First Bank Limited v. Hitachi MGRM Net Limited (2023) held that an arbitral tribunal is subject to writ jurisdiction under Articles 226/227 of the Constitution; however, the exercise of such powers is limited to exceptional circumstances. The non-obstante clause in Section 5 of the Arbitration Act does not override the constitutional powers under Article 227. The court in the above case also held that interference is warranted only when the order is patently perverse or lacks inherent jurisdiction. Courts must discourage unnecessary interference in the arbitral process, as excessive judicial intervention undermines its efficiency. Therefore, the exercise of writ jurisdiction should be reserved for rare cases, particularly where bad faith is evident. Based on the above, the court observed that the claims were that of the Respondents. When the Arbitral Tribunal declined to allow an amendment to the claims on the ground that the mandate of the Arbitral Tribunal was nearing expiry in May 2024 it offered the claimants two options. It further said that the Respondents/Claimants opted to withdraw the existing claim with liberty to file a fresh one, rather than continue with the present proceedings. The withdrawal was not simplicitor but based on the option provided by the Arbitral Tribunal. The court further observed that a plain reading of the impugned order does not reflect any recognition of a 'legitimate interest' of the Petitioner that would justify rejecting...

No Bar On Arbitrator To Allow Withdrawal Of Claims Provided Legitimate Interests Of Other Party Are Not Prejudiced: Bombay High Court

Mohd Malik Chauhan

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No Bar On Arbitrator To Allow Withdrawal Of Claims Provided Legitimate Interests Of Other Party Are Not Prejudiced: Bombay High Court

Mohd Malik Chauhan

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